Guest editorial: Yes, there is an iPod tax

The Ottawa Citizen, Vancouver Sun04.12.2013

An iPod Touch is shown with the App store on its screen in Toronto, January 13, 2011. Canadian consumers could soon face higher prices on electronics like TVs and iPods because it's going to be all but impossible for importers to exempt the products from a controversial tariff, a major electronics maker warns.

Economist Mike Moffatt has spent the last week or so doggedly trying to figure out whether there’s a new five-per-cent tariff on iPods. He’s done the country a service.

For the record, there does seem to be an iPod tax; iPods are eligible for an exemption but the rules make it highly unlikely that exemption would apply.

Not that an iPod tax is, in itself, particularly egregious or important. The focus on iPods merely allows political junkies to chortle at the Conservatives’ hypocrisy, because the Conservatives famously mocked their opponents for their supposed support of an iPod tax in 2010.

The reason Moffatt’s work is so important is because it exposes the complexity and opacity of the tariff regime and the real, harmful effects tariffs have on Canadian consumers. Do you want to pay an extra five per cent for your iPod? No? Well, how about 13 per cent on bicycles, or 15.5 per cent on wigs for cancer patients?

It is accurate to call the tariff an “iPod tax.” Tariffs are taxes on imports. Imports are good things. Trade encourages countries to specialize, which means everyone gets better stuff, and pays less for it. Access to iPods from overseas is a benefit, not a drawback.

Tariffs raise consumer prices, both directly and indirectly, by stifling competition. The government acknowledged as much when it crowed about its decision to lower tariffs on hockey equipment and baby clothes in the 2013 budget. That same budget eliminated preferential (low-tariff) status for 72 countries, such as China and Brazil, that were once considered “developing.”

The budget simultaneously lowers a few tariffs and calls that “tariff relief,” while raising many more, calling that “modernizing” the tariff system. Parts of the government seem to view low-tariff or tariff-free imports as a foreign-aid program that only affects our trading partners, while other parts seem to recognize that tariffs are bad for Canadians, too.

Meanwhile, the government fights tooth and claw in trade negotiations, as if tariffs were something we have to be forced to give up. These deals get hung up for years, often on disagreement over clauses that have little to do with tariffs. If the government can unilaterally eliminate tariffs on hockey equipment, or on manufacturing inputs, why can’t it do the same for many other products?

Of course, tariff elimination should be done with care; there is, for one thing, the government revenue to consider. But even that is not a straight loss, as the economic benefits of increased sales and competition are likely to boost revenues from other, less harmful taxes.

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